'One-time' Iraqi oil sale may prove hard to stop U.S. fears Hussein will use it as wedge

Mark MatthewsTHE BALTIMORE SUN

WASHINGTON -- Two and a half years after the West and its Arab allies went to war to keep Saddam Hussein from controlling the world's oil markets, the Iraqi president is again sending jitters through oil producers and their governments.

The markets are jumpy over the consequences of a one-time, $1.6 million Iraqi oil sale the United Nations is considering to allow Baghdad to finance humanitarian needs and war reparations.

There also is concern among oil analysts and within the U.S. government that the spigot will be hard to turn off, particularly as the U.N. humanitarian-aid coffers are desperately short of cash.

This raises the possibility that Baghdad may be able to break free of the world blockade on its oil exports and resume annual oil sales of up to $17 billion.

In turn, the sale could mark the beginning of the end of post-war U.N. controls that have prevented Iraq from rebuilding its economic base and rearming.

These prospects pose a serious diplomatic challenge to the Clinton administration as it tries to hold to gether an international coalition and maintain maximum pressure on Iraq to comply with U.N. requirements.

Such a turn seemed inconceivable only weeks ago. Twenty-three U.S. Tomahawk missiles were launched at Baghdad's intelligence headquarters in retaliation for an attempt to assassinate former President George Bush, and Mr. Hussein was risking another attack in a standoff over weapons monitoring.

But talks have proceeded in New York over a plan to allow Baghdad the one-time oil sale under U.N. supervision.

Iraq had resisted such a supervised sale as an unacceptable infringement on its sovereignty: It wouldn't be free to use the proceeds as it saw fit, and the humanitarian relief would be overseen by outside organizations.

"It's clear the Iraqis have focused in on the requirements that would enable them to sell oil," said a senior Clinton administration official of Iraq's compliance with U.N. mandates.

The official said Iraq's new flexibility on both the one-time oil sale and an agreement Monday on long-term, U.N. weapons monitoring reflected "a new sign of weakness on Saddam's part" and showed the impact of the cruise-missile attack.

But some outside experts feel that Iraq is cleverly seizing an opportunity to weaken U.N. sanctions.

Worse, from the oil producers' point of view, is that Iraq could use even the one-time, six-month sale to exert leverage over the markets by undercutting the prevailing price.

"There's no incentive for him in maintaining stable markets," said a diplomat from an oil-producing country.

It was this fear that sent world oil prices tumbling Monday before the Organization of Petroleum Exporting Countries (OPEC) scheduled an emergency meeting for next week. Domestic oil producers are "worried sick," Mr. Kern said.

Additional turmoil is expected before all the terms of Monday's agreement between Iraq and the United Nations become clear. The oil industry wants the U.N. Security Council to prevent Iraqi price manipulation by fixing a barrel, rather than a dollar, amount.

By easing this plight, the oil sales in turn could strengthen Mr. Hussein's political position.

"It will provide Iraq with sufficient resources to quell domestic discontent with the economic situation for the foreseeable future," says Patrick Clawson, an Iraq expert at the National Defense University.

While other barriers remain, particularly Iraq's continued refusal to provide a full accounting of all its weapons programs and suppliers, U.N. arms envoy Rolf Ekeus has made clear that he has held out the prospect of lifting the oil embargo as an incentive to Iraq.

The United States and Britain flatly oppose lifting any sanctions until Iraq complies with all U.N. resolutions, including ones demanding that Baghdad stop repressing the Kurds in northern Iraq and the Shiites in its southern marshes.